For the past few years, following the machinations of mass arbitrations has been like watching a tennis match. First one side hits a volley, then another returns, and on-and-on with the opposing sides continually stuck in some form of “deuce.”
The Origins of the Current Situation
The current situation arose because, in what now seems like the distant past, companies and their counsel put up roadblocks to in-court class-actions for consumer and employment claims by including certain terms – a requirement to both arbitrate and not to bring or be part of any joint or class claims – in their contracts with consumers/employees. The result was that a person had to bring an individual arbitration when they had a dispute. Where many of these disputes do not have large individual potential damages, an individual arbitration was often seen as practically and economically prohibitive.
The Rise of Mass Arbitrations
The Plaintiffs bar responded by filing what has become known as “mass arbitrations”; hundreds, if not thousands, of virtually identical individual claims against one company before the contractually agreed upon arbitration service provider like the American Arbitration Association or JAMS. Under the rules of those service providers, this meant that in most cases the company accused of wrongdoing had to pay a separate filing fee for each arbitration filed.
Implications and Challenges for Companies
The practical results of this new form of action were significant, with the target company potentially required to pay more to start the arbitrations than the combined value of the asserted claims.
For example, Uber in just “one” mass arbitration faced an administrative bill to have the claims opened of over ninety million dollars ($90,000,000). For any company, let alone one that announced its first profit ever – a profit of one-million eight hundred thousand dollars ($1,800,000) in 2023 – that size of a fee is a heavy lift (or Lyft).
Uber was not alone. Samsung faced nearly 50,000 substantively identical claims; DoorDash had over 5,000, and Wells Fargo saw over 3,300 claims in arbitration. Companies did their best to push back against these claims. Some refused to arbitrate or to even pay the forum fees, interestingly leading to the claimants moving to compel arbitration. Not surprisingly, the courts have universally held that a company is bound by the terms of its own contract. However, the Seventh Circuit recently held a hearing on a lower court’s order requiring Samsung to pay over $4,000,000 in arbitration initiation fees resulting from the mass arbitration claims.
Responses and Countermeasures
Companies began to try to work around what the US Chamber of Commerce has labeled “blackmail” – filing so many arbitrations that the initial fees were large enough that companies regardless of the merits had no choice but to come to the table to settle. Some large companies, like Amazon, simply decided to scrap the class-action waiver and mandatory arbitration provisions in their customer agreements. Others tried to fight back procedurally by altering their consumer or employment agreements to require either an initial mediation or the arbitrating of bellwether cases (batch arbitrations) if a certain number of like cases were filed. These provisions are currently being challenged on grounds such as due process and timeliness of claims being heard in a batch process. At least one court has already held that an arbitration provision requiring batch arbitration where there were mass claims was substantively unconscionable.
Evolving Legal Landscape
In addition to attempting to alter the underlying arbitration provisions, other actions have been taken in an attempt to control the substantial initial economic outlay incurred by companies facing mass arbitrations. For example, arbitrator service providers have either been created, or amended their existing rules, to accommodate mass arbitrations in a more “fee friendly” setting for the business. Entities like the International Institute for Conflict Prevention and Resolution (CPR), the Federal Arbitration Board (FedArb) and New Era ADR quickly got into the business of handling mass arbitrations. Consumer/employment counsel have challenged, or are challenging, these entities organizational rules relating to mass arbitration claims.
New Rules and Responses
Even the American Arbitration Association (the AAA), in January 2024, introduced new rules for defined “mass arbitrations”. These rules were created to streamline and simplify the process for administratively managing multiple similar cases and include, among others:
- An attestation requirement on the Claimant relating to information in the statement of claim.
- A specific role for a process arbitrator over all the claims.
- A new fee structure.
Complaints have already arisen over these rules with some asserting that they give companies the benefits of a “class action” without the burden of litigating against a class. Others see these rules as being structured to lower the fees for companies while increasing the burden on a claimant who files in a mass arbitration. And unsurprisingly, the rules are being challenged either directly or indirectly.
Challenges Persist
For instance, a group of claimants who brought suit against Wells Fargo fell under the new AAA mass arbitration rules. The AAA appointed a process arbitrator (whose appointment the claimants challenged but then lost the challenge in court) who required each claimant at the beginning of their claim to prove both that they had the at-issue product from Wells, and had incurred costs associated with the asserted wrongdoing related to that product. Claimants have brought a suit against Wells Fargo in court arguing that the use of this new AAA “mass arbitration” system and its process requirements violate both federal and California law.
And don’t assume that companies aren’t looking at alternative ways to attack, challenge or work around these new rules. Recently, a group of nineteen (19) employees whose employment contracts included mandatory arbitration and class action waivers, each separately brought arbitrations against their employer (which is not enough claims to be deemed a “mass arbitration”). When the AAA sent bills to the company based upon the service providers fee schedule, the company refused to pay because the underlying contracts required that the parties split the administrative arbitration fees. The specific AAA fee schedule placed a higher payment burden on the employer. Due to this lack of payment, the AAA refused (like they had in the above referenced Samsung matters) to hear the arbitrations and the employees went back to filing in court. There the company challenged the AAA’s automatic fee rules. The 2nd Circuit held that a valid enforceable fee-split provision in a contract is enforceable and trumps the automatic fees assessed by the AAA. This finding opens new opportunities for companies to alter their consumer and employment agreements relating to the economic structure of mass arbitrations. If successful, the potential economic burden, the very reason mass arbitrations were arguably first initiated, this time on claimants, may dissuade individuals and their counsel from bringing high volume claims. Do not be surprised to see more companies add these types of provisions to their contracts, which of course will result in more litigation over the enforcement of those specific contract terms.
Legal Battles and Future Trends
As is obvious from the above, the issues surrounding mass arbitrations are still in flux. For the past few years, the claimants’ and respondents’ bars have lobbed volleys at each other trying to find a weakness in the other side. Prognosticators may attempt to predict the outcome, but the tactics and theories are constantly changing. One thing should be certain; just like in tennis, it is not clear where this back and forth will end up. It isn’t even clear if we are near the last set.
Brett Krantz (BK@kjk.com; 216.736.7238) is a partner at KJK and an arbitrator for both FINRA and the consumer and commercial panels for the American Arbitration Association.